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Online gaming isn’t new. Since gambling has proven to stretch back to the dawn of time, it’s not surprising to see it reach all the way back to the dawn of the internet. For the past 20 years, gaming has been the second-most lucrative segment of the internet (right after “sex”). So it was only a matter of time before Native Americans had to grapple with the issues that online gaming brings to the tribal doorstep.
While commercial casinos are eagerly lining up behind what is anticipated to be the legalization of certain parts of online gaming in the U.S., tribes have been reluctant participants. After all, it’s only been 20 years or so that tribal government gaming has been transforming some of the nation’s poorest communities into prosperous and powerful organizations, producing revenue, jobs and a bright future of their people. The multi-tiered regulatory system is still being refined and tribes, for the most part, are just beginning to use gaming revenues to diversify their economies.
So it isn’t any wonder that most tribes are uncomfortable with a form of gaming with which they are unfamiliar and whose benefits are somewhat nebulous at this point. And it’s not a shock that the issue at the top of the list of concerns is one that is familiar to all Native American leaders: tribal sovereignty.
GETTING HERE
In any case, the United States is late to the party when it comes to online gaming. The birthplace of online gaming is small Caribbean and Central American countries where some nefarious companies and individuals set up servers and systems to run their online operations in a U.S.-facing setting.
The industry was a bit more respectable across the Atlantic, where small nations and territories like Malta, Gibraltar, the Isle of Man, Alderney and others set up rudimentary regulatory systems that legitimatized the activity. Today, most European countries have accepted the reality of online and mobile betting and have established rules and regulations that control the online industry. At the same time, the European Union, via the European Commission, has set anti-monopoly rules that allow a fairly level online gaming playing field among all its members.
The U.S., meanwhile, went in the other direction. In 2006, Congress passed the Unlawful Internet Gaming Enforcement Act (UIGEA), slipping it through at the end of the session, and effectively banning the transmission of money to and from any organization involved with internet gaming. Although enforcement was still two years away, it prohibited U.S.-based banks from accepting transactions from online gaming companies.
At that time, many of the companies that had been accepting U.S. wagers—PartyGaming, Microgaming, 888 and others—stopped taking those bets, while others—Full Tilt Poker, PokerStars and many smaller sites—continued to accept them. Some companies that halted U.S. bets made deals with the U.S. Department of Justice that purged any previous wrongdoing from their record, while the ones that continue to take bets are considered criminals.
But UIGEA barely dented the online gaming industry in the U.S., with players quickly finding ways around the transaction prohibition. Today, it is estimated that the U.S. market for online gaming is worth somewhere around $20 billion.
Online gaming advocates point at that number and describe tax revenues that can be derived from it. Suddenly, politicians are interested.
ONLINE LEGISLATIVE ACTION
In 2010, Rep. Barney Frank (D-Massachusetts) proposed a bill that would legalize certain forms of online gaming. The bill was approved by the Finance Committee, but died before ever getting a hearing before the full House of Representatives.
Late last year, Senator Harry Reid (D-Nevada), the Senate’s majority leader, pushed a bill to legalize online poker, again stressing the tax revenue that could be accrued during a budget crunch. Although the bill never received a hearing by a committee or the full Senate, it nonetheless was seriously considered. Several factors played against its passage, not the least of which was a division among the gaming industry about how it should be implemented.
Tribal interests were closely involved with the negotiations, and although the bill didn’t pass, they sent the message that no online gaming legalization will pass without tribal involvement and signoff.
Meanwhile, individual states have begun to consider legalizing “intrastate” online gaming, meaning only residents who live inside the state borders can gamble on devices located within the state. New Jersey came the closest. In late 2010, the state legislature passed a bill legalizing online gaming, which was vetoed by Governor Chris Christie in February. While supporters will re-introduce the bill with changes addressing Christie’s objections, the bill has little bearing on Indian Country because there are no federally recognized tribes or tribal gaming facilities in the state.
Not so in California, where two bills to legalize online gaming have divided state tribes, gaming and non-gaming alike. The debate in California is lively and somewhat divisive, but is indicative of tribal opinions across the country.
Robert Smith, the chairman of the Pala Band of Mission Indians, is also chairman of California Tribal Business Alliance, a group of three tribes interested in developing partnerships and coalitions with like-minded governments and with business, community and civic organizations, with the intent to build productive alliances based on mutual respect and cooperation.
Smith says it’s essential for tribes to have a seat at the table when internet gaming is discussed.
“We need that seat to educate decision-makers about the inherent rights of tribal governments and to ensure that tribal interests are included in the policy discussions,” he says. “There’s too much at stake, to not be involved.”
Robert Martin, the chairman of the Morongo Band of Mission Indians, says that seat should lead to action, lest the tribes be left behind by opposing online gaming. As a member of the California Online Poker Association (COPA), Martin supports one of bills, which would legalize online poker in the state. He believes that if the state doesn’t get involved, only the illegal offshore operators will continue to benefit.
“Unlike offshore operators who have skirted the law, tribes have consistently adhered and abided by the provisions of UIGEA and IGRA,” he says. “In 48 states, tribes are synonymous with gaming.
“In California, tribal governments are the state’s established gaming partners. It has been a beneficial relationship for both sides for years as tribal gaming has generated billions in revenue for the state and currently employs more than 64,000 Californians.”
BUSINESS CONSENSUS
Ivan Makil, the former president of the Salt River Pima-Maricopa Indian Community in Arizona, and a candidate for chairman of the National Indian Gaming A
ssociation, believes tribes need to come together on this issue.
“The opinions of the tribes need to be heard,” he says. “We need to draw on the necessary expertise and as much objective information as possible in order to evaluate the potential impacts of online gaming. Internet gaming will mean different things for different tribes depending upon market, geography and philosophy. Consensus can only be reached when there is clarity about this issue and its impacts on all tribes.”
Leslie Lohse, treasurer of the Paskenta Band of Nomlaki Indians, and vice chairwoman of the CTBA, believes that internet gaming as proposed everywhere threatens tribal sovereignty.
“CTBA does not jump into something quickly without examining every angle,” she explains. “We don’t just look at the business perspective, which we can appreciate, but we also have to consider how it impacts the sovereignty of our governments. Not to mention the social aspect. We want to be careful what we ask for because we just might get it. Let’s slow down, be clear, and fully vet it and not just be in a rush to plug a hole.”
Ernie Stevens, the chairman of NIGA, says his organization has been monitoring this issue for the past decade and his goals remain unchanged.
“Throughout these discussions, NIGA’s position has remained consistent: any new laws on internet gaming must acknowledge Indian tribes as governments, protect tribal sovereignty, and preserve existing rights under IGRA,” he says. “This approach succeeded in 2006 when Congress passed the Unlawful Internet Gambling Enforcement Act. Because of our work, that act protects electronically linked Class II and Class III Indian gaming, and tribal-state compact provisions that speak to internet gambling.
Morongo’s Martin believes that tribes can come together with a single voice when speaking of internet gaming.
“There already is a consensus within Indian Country that we need to adapt to meet the changing demands of the market,” he says. “Part of that consensus also includes that the internet is the new frontier of gaming.”
Smith says while there is a general agreement, specifics can get difficult.
“There are 565 federally recognized tribal governments in the United States,” he says. “It is virtually impossible to get unanimity on this issue or any issue.”
Since most i-gaming bills envision taxing the online gaming sites in different ways, Lohse says there isn’t a way around that issue if you stand for tribal sovereignty.
“Taxation is out,” she says bluntly. “It’s a non-starter right there. We are a government. One government cannot tax another government. Several compacts in California have been rejected recently because they have been deemed as taxation on the tribes.”
Martin agrees on that point.
“A governing body cannot legally assign taxes to federally recognized tribes,” he says. “It is unenforceable, and therefore sovereignty doesn’t come into question.”
Under one of the California bills, only LLCs would be able to offer online gaming, which would mean tribes would set up an LLC separate from their tribal enterprises, and be taxed like a normal business. While Lohse wouldn’t rule that out, she contends it is a slippery slope.
“That’s a big issue for us,” she says. “If it’s an LLC, there is no consideration about the impact on the tribal government. You’re creating a business, which we have a right to do, but the issue is that even online creates gaming devices that violate our compacts. Today, the Gaming Control Board considers any gambling online as an illegal gaming device. The tribes would have to go outside our government status, which would be like punishing ourselves. It starts to erode our sovereignty.”
Martin disagrees.
“Online poker poses absolutely no threat to tribal sovereignty because it is a Class II game under IGRA,” he says. “Class II games are not exclusive to tribes and are not part of any tribal compacts.”
MARKET OPPORTUNITY
Land-based, commercial casino companies see internet gaming as a double benefit. First, it will create new revenues in a difficult economy. It may even allow first-time gamblers to get a taste of gaming entertainment. But they also believe that they can use online gaming to bring customers to their bricks-and-mortar casinos by offering inducements—free or low-cost rooms, cash-back coupons, sweepstakes and more. The same is true for tribal casinos, says Martin.
“The online player differs from the player at brick-and-mortar casinos,” he says. “However, by offering poker online, studies have shown that more players will develop an interest in also playing at live casinos in addition to playing online. So the two forms of gaming will complement each other well.”
Smith isn’t so sure.
“Tribal governments need to look at i-gaming from every angle, every perspective, before taking a position on the authorization of internet gaming,” he insists. “As sovereign nations, first and foremost, we need to look at it from the governmental perspective. Tribal governments come to the table knowing that any decision made could impact their governments in the near term, and, more importantly, it could impact the future of their nations.
“Lobbyists, advocates and shareholders are looking at it purely from a business perspective, from a dollars-and-cents perspective—how it impacts their bottom line now, not how it will affect the livelihood of their government generations from now.”
Smith is concerned about how online gaming would spread outside of tribal casinos and hopes that regulations would control it. In New Jersey, Christie cited a similar concern when vetoing the bill in that state.
“The regulatory scheme at the state level, or the federal level for that matter, should prohibit internet cafés, the establishment of i-poker rooms at existing brick-and-mortar casinos, as well as, the redemption of winnings at existing casinos,” Smith says.
Smith believes that internet gaming should remain illegal until it is clear what the impact might be, how it can be effectively regulated and controlled and has adequate protections for tribes.
“Internet gaming should remain illegal,” he says, “until all of the due diligence is done and, at a minimum, it is determined that it is cost-effective, can be implemented with all of the safeguards necessary to protect the sovereign rights of tribes and existing government-to-government agreements, it has all of the safeguards to protect owners, operators, employees, players, etc., and, it should be limited to i-poker. Furthermore, illegal operators should be brought to justice.”
Martin says any delay will simply embolden the illegal operators and threaten the integrity of the existing gaming systems.
“Currently, the players aren’t being afforded any protection from fraud and theft,” he says. “The states aren’t receiving any benefits from this growing industry and the tribes are being locked out from this new frontier in gaming. The only ones who are benefiting with the status quo are the illegal offshore operators who continue to siphon jobs and billions in revenue from our economy.”
Lohse believes that there is a more important reason for taking the time to understand all the ramifications of online gaming.
“As tribal leaders, we have to stand firm and see the bigger picture,” she says. “You have to have things to preserve for the future. We want our people to be able to survive and thrive. If we make an agreement on internet gambling and it goes wrong, we’ve betrayed our children.”
